| LXBN | May 20, 2016
In a paraphrase
from the movie “Finding Nemo:” The sun is shining, the tank is clean, and the
Department of Labor has finally dropped its final overtime rules.
The wait isn’t completely over; the rules themselves,
which expand overtime eligibility for millions of American workers, won’t go
into effect until December 1. But don’t worry, there’s plenty to do now in
order to prepare.
Digging ahead on the details
The Final Rule mandates that the new minimum salary level (under
which employees are guaranteed overtime for work done at more than 40 hours a
week) must be $913 per week, which works out to $47,476 a year. For those of
you playing along at home, that’s double the current salary threshold for
executive, administrative or professional employees of at least $455 per week
(or $23,660 in a year). To put it plainly, if you have an employee making under
$913 a week come December 1—no matter what their job duties are—they must be
paid overtime for any hours over 40 in work week. The threshold for “highly
compensated employees” exception will jump from $100,000 to $134,004 a year.
Additionally, that threshold will be
changing every three years, and is tied to the salary level at the 40th
percentile of earnings of full-time salaried workers in the lowest-wage Census
region. But what won’t be changing is the duties test. As Corie Tarara writes
on the Minnesota Wage and Hour blog:
Regardless of an employee’s salary, an
employee may make more than the threshold amount and still not qualify for the
exemption. Remember this is called the “white collar” exemption for a reason –
think the opposite of Jeff Foxworthy and his
Blue Collar Comedy Tour. Though, that is good stuff. Anyway, in
order to qualify, the employee must: (1) have a primary duty of the performance
of office or non-manual work directly related to the management or general
business operations; (2) have independent discretion with matters of
significance or supervise two or more employees; or (3) be in an advanced field
of science or other specialized prolonged education background, a specialized
creative artistic field, a school teacher, or a computer analyzer, programmer
or engineer. Under the duties test, the employee must: (1) be paid on a salary
basis; (2) be paid at least a fixed minimum salary per week; and (3) meet
certain requirements as to their job duties. Thus, while all eyes are on the salary
threshold changing, don’t forget that the salary doesn’t matter if the employee
is not performing the duties required to meet the exemption!
Preparing for new protocol
So what should employers be doing now to
prepare?
As Daniel Schwartz sagely
advises in his post on the Connecticut Employment Law Blog, don’t think you can just blindly adopt
the new federal rules into your workplace.
“For example, increasing the base salary to avoid overtime
obligations under the federal rule may not matter if the employee does not meet
the duties test under Connecticut law for the same exemption,” said Schwartz.
“This is one of those situations that will require a case-by-case look at
specific positions and the interaction between state and federal law.
Unfortunately, you’ll probably want to consult heavily with various HR
consultants or lawyers specializing in employment law.”
That’s right: The time to start reviewing
in order to be prepared for the December deadline is now. And as Eric Hemmendinger and Fiona W. Ong write
for The Labor & Employment Report, that means taking a look at each
employee and going from there:
This will require employers to review the
status of employees who are currently designated as exempt but whose salaries
do not meet the new threshold. If an employer wants to continue to classify
those employees as salaried exempt, it will have to make sure that their
salaries meet the new threshold. In the alternative, employers may choose
to reclassify positions as non-exempt, in which case they have a number of
choices concerning the method of payment. Additionally, employers will need to
train both managers and the newly non-exempt employees they supervise on a
range of issues, such as refraining from off-the-clock work and recording
actual hours worked.
Don’t forget, in order to exclude an
employee from minimum wage and overtime requirements, there are three
thresholds to be met: the “salary basis test,” the “salary level test,” and the
aforementioned “duties test.” Between those tests there’s possibly still some
wiggle room (which is why it’s so important to make sure you’re consulting with
HR and employment lawyers), but you have to be careful.
For instance you could techincally count
bonuses, commissions, and other incentive payments towards the new threshold.
But as Ivo Becica writes for the HR Legalist, that comes with some caveats:
In order to count towards the new
threshold, bonuses, commissions and other incentive payments must be
non-discretionary (meaning that they are payable if the employee satisfies
certain performance criteria, as opposed to entirely at the employer’s
discretion) and payable on at least a quarterly basis. Only 10% of the
threshold can be met using bonuses, incentive pay or commissions. In
order to meet the threshold, employers can make a “catch up” payment within one
pay period at the end of each quarter. The regulations do not allow
employers to supplement bonuses at the end of the year to meet the threshold.
All in all, this is a big move from the
Department of Labor and the Obama administration. The DOL estimates that 4.2 million workers will
become newly eligible for overtime, and some other estimates have that number even higher. Come December we’re going to see a major
shift in the number of overtime-eligible workers—so make sure you’re swimming
with the tide so it doesn’t pull you under this Winter.
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